Mass Money Debauchery

The present day offers the opportunity for many incredible experiences.  Perhaps one of the most rewarding of all is bearing witness to the final days before the greatest economic crackup the world’s ever known.  Not since Nero clipped coins in 64 A.D. and fiddled as Rome burned has there been such an intolerable collection of dingleberries in imperial office.

John Maynard Keynes, the godfather of modern day economic planning, in his 1919 work, The Economic Consequences of the Peace, wrote: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.”

Incidentally, Keynes attributed this acute insight to another innovative central planner, one Vladimir Lenin.  Regrettably, these two visionaries predicted today’s present state of affairs with remarkable foresight.

Here we are, nearly 100 years later, and the currency has been near fully debauched.  What’s more, the basis of society has been completely overturned.  Gawping at the Presidential debate earlier this week made this all too apparent.

Two hominids, panting at the watering hole, squawking and shrieking over who gets to divvy up and dole out the peanuts.  One wants to transfer wealth from the rich via payments to the poor.  The other wants to rebuild the nation’s crumbly airports and bridges using money from somewhere.

A Big Fat Ugly Bubble

We’ve heard that the populace gets the President they deserve.  A civil and virtuous populace deserves a worthy and honorable President.  Appropriately, today’s reduced populace now gets to select from a grotesquely reduced pair of political armpit scratchers.

To Trump’s credit, however, he did point the spotlight on the economy and the Fed.  Specifically, he made a sincere attempt to bring the Fed’s destructive feedback loops to the people’s attention.

“Now, look, we have the worst revival of an economy since the Great Depression.  And believe me: We’re in a bubble right now.  And the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down.

“We are in a big, fat, ugly bubble.  And we better be awfully careful.  And we have a Fed that’s doing political things.  This Janet Yellen of the Fed.  The Fed is doing political — by keeping the interest rates at this level.  And believe me: The day Obama goes off, and he leaves, and goes out to the golf course for the rest of his life to play golf, when they raise interest rates, you’re going to see some very bad things happen, because the Fed is not doing their job.  The Fed is being more political than Secretary Clinton.”

Unfortunately, what Trump’s talking about – specifically, debauching the currency – is largely not understood.  Because, as Keynes elaborated, “The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Instead, what the working stiffs commonly perceive is that their pay check doesn’t go as far as before.  They also may find, through no fault of their own, that upon being laid off the available jobs stink and the pay stinks even more.  The fact that things will soon get much, much worse, has become a very real prospect.

Mass Money Debauchery

Cheap credit, courtesy of the Fed, has pushed financial markets far beyond what the real economy can sustain.  As Trump said, “When they raise interest rates, you’re going to see some very bad things happen.”

In short, the Fed serves no worthy purpose.  We don’t condone it.  But given the current arrangement it is painfully clear they should have raised rates years ago.

The Fed’s policies of mass money debauchery have not stimulated the economy.  To the contrary, they’ve stimulated a financial system that’s so lopsided that markets will convulse when rates start to rise.

This means your investment portfolio of bonds, stocks, and real estate will get destroyed.  What then?

The Swiss National Bank and the Bank of Japan already borrow money into existence and buy stocks as a matter of monetary policy.  The European Central Bank may consider this too.

And on Thursday, Fed Chair Janet Yellen said there could be benefits to allowing the central bank to buy stocks as a way to boost the economy in a downturn.  If this isn’t absolute madness we don’t know what is.

Sincerely,

MN Gordon
for Economic Prism

Return from Mass Money Debauchery to Economic Prism